Corporate Directors’ Exposure to Breach of Fiduciary Duty Claims
November 3, 2022
Periodically courts remind corporate directors that their decisions to act or to refrain from acting during the course of managing the affairs of a corporation are not without limitations. It is well established that corporate directors owe fiduciary duties, and more specifically, a duty of care and a duty of loyalty to corporate shareholders. Those duties should always be at the front of mind of every director when any action or inaction is contemplated, but in particular, when addressing challenging issues facing the corporation. Directors are afforded wide latitude under state corporate law, and by the courts interpreting those laws, to make decisions regarding the management of a corporation that are appropriately within the scope of the directors’ business judgement. But courts, and in particular bankruptcy courts with an interest in protecting a number of different stakeholders, are not shy about reminding corporate directors that the scope of protection provided by the business judgment rule is not unlimited.
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